China's tariffs to target most, not all, new US PE output: ACC

http://www.chemnet.com Aug 10,2018 Platts

Houston — The American Chemistry Council on Thursday revised its list of US petrochemicals and plastics targeted for $16 billion in retaliatory tariffs from China, removing a grade that will make up about one-fifth new US polyethylene capacity -- much of which is intended to meet Chinese demand through the next decade.

The ACC, along with US petrochemical producers and traders, has rushed to sort out what was and was not on China's revised list of tariffs that will be imposed on August 23 in response to a $16 billion chemical- and plastics-heavy list of tariffs that the US will impose on Chinese goods from that date.
Initially the ACC said China's list included three grades of US-origin polyethylene: low density (LDPE), linear low density (LLDPE) and high density (HDPE). An earlier version of China's $16 billion list had included just LDPE, which makes up about 20% of the 9.2 million mt/year of known US polyethylene capacity starting up in from 2017 through 2020 and beyond. The revised list was thought to have all three, making up the total amount of known new capacity.

On Thursday, the ACC said further study revealed that LDPE was not on the revised list of tariffs to be implemented on August 23, but it does target LLDPE and HDPE, which make up 80% of the new capacity. LLDPE is used to make pliable plastic films and packaging, while HDPE's uses include milk jugs, grocery bags and detergent bottles.

The revised list also dropped polyvinyl chloride, a resin used to make construction materials like flooring, vinyl siding and pipes. It still targets ethylene dichloride, a precursor to PVC, and China is the top market for US export EDC. It also still targets gasoline, propane, crude oil and diesel.

Producers and traders were also watching for more revisions.

"They realized they left a loophole," Fernando Musa, CEO of Brazilian petrochemical producer Braskem, said about the addition of HDPE during the company's quarterly earnings call on Thursday.

A source with Chinese customs said Thursday that market participants should check repeatedly with China's Ministry of Commerce for further revisions, which could be made before the tariffs were implemented.

The dual lists of $16 billion in tariffs are the second round of an initial $50 billion. The US imposed $34 billion in tariffs on Chinese goods July 6, and China responded immediately with tariffs of the same value on US goods, largely agricultural crops and automobiles.

The US started in March with tariffs on steel and aluminum imports from China and other sources that eventually included Mexico, the European Union and Canada, the largest steel importer to the US.

The US is considering another $200 billion in tariffs on Chinese goods, and China said it would retaliate with another $60 billion in taxes on US products.

The ACC has vehemently argued against adding taxes on Chinese imports of chemicals and plastics made with them, citing nearly $200 billion in new US chemical infrastructure that includes eight new ethane-fed steam crackers and 13 new PE plants opening in 2017-2019 with more thereafter.

Plentiful cheap feedstocks from the US natural gas boom prompted the buildout, though most if not all new output will be exported to growth markets -- with China by far the top destination.

Musa said Thursday that trade flows would adjust and eventually reach a new equilibrium, albeit with short-term difficulties. He also said it was not in the interests of the US or China "to keep going and escalating."

"With two very strong-willed leaders, it's hard to predict. So let's see where it goes," he said.